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Sticker Shock Bandwagon

Whether he did or didn't, there are several million angry people out there who are getting "pay more or be cancelled" notices from their insurance companies for 2014.

So what's going on? On the RIght, of course, Obama was caught in a bald-faced lie, having given his personal guarantee that all Americans could keep their current insurance if they wished. On the Left, technically Obama wasn't lying, because there is nothing in the PPACA (Obamacare) statute that says that insurance companies have to cancel policies or that anyone at all has to be forced onto the exchanges. But Obama can't control the insurance companies and their own business decisions. So it's their fault.

Everyone is spinning as fast as they can. What's really happening?

What people are mostly talking about is the individual market as opposed to the group market. The group market (which I will have a bit to say about at the end) is for people who get their insurance through their jobs. The individual market is where a person buys insurance directly for himself from the insurance company.

While Obamacare did not mandate that insurance companies cancel individual policies, it did radically and permanently change the individual insurance market. This in turn created new market conditions to which the insurance companies had to react, changing their behavior.

The way the individual market used to work was as follows: there were, say, 50 million people who were in the market for individual insurance, but only about 12 million could actually buy it. The reason that the others could not buy it was that they had pre-existing conditions or certain needs (pregnancy coverage, for example) that made the individual plans too expensive or simply unavailable.

Of the people who could buy individual coverage, they were either people in excellent health or they were people willing to put up with very basic (if not substandard) benefits, or both. For these people, individual insurance was relatively cheap (provided they didn't later develop health problems). For the insurance companies they were rather profitable, because people were either too healthy to use any benefits or they weren't using benefits, obviously, that they didn't have. In general the people who had individual insurance had about half the benefits than the average policy one gets through their job.

What Obamacare did to change the market was to mandate that individual coverage benefits mirror group coverage benefits. Twice the benefits means twice the price for people who have to buy a new policy that conforms to the new standards.

But who has to buy a new policy?

The ACA legislation allowed people to be grandfathered into their old, noncompliant policies and go on, basically, as though Obamacare never happened. When Obama said that people could keep their coverage if they wanted to, this was the statute he was referring to.

The question is, how many people grandfathered? The answer is, not many; maybe 20 percent of those who could have did. The window for grandfathering was in 2010, at a time when people probably didn't quite understand what could happen if they didn't grandfather.

The people who did not grandfather at first did not see much of a change, because the Obamacare mandates weren't (mostly) effective until 2014. The time of reckoning came when it was time for people to renew into their 2014 policies. Now the policies had be to Obamacare-compliant and they cost more; much more if someone currently had a real slimmed-down noncompliant individual policy.

Now, the supporters of Obamacare are not lying when they say that many of the old policies were simply inadequate, that the new plans have much better benfits, and that many people will find that they get a subsidy if they buy on the exchanges.

But what if one doesn't care? What if one didn't want richer benefits or was satisfied with their substandard benefits, or can't get a subsidy on the exchange; and they didn't grandfather at the time because they didn't understand it or they took Obama at his word that they weren't going to have to change their plans? These people are going to be disgruntled and they have reason to be. But there's no going back. It's like when the law required pollution controls in cars. For a while some old models were grandfathered and didn't have to have catalytic converters. But eventually all cars did--and at great expense.

What about the turmoil in the group market?

There were also cases where group plans had substandard or noncompliant benefits and they also had to conform. But the main thing that is going on is the normal annual round of benefit and price changes which in this season are being blamed on Obama. (Detractors of Obamacare don't note that at least half of individual policies would have significant benefit and price changes in a normal year. It's not the case that none of this would be happening but for Obamacare.)

What did Obama know and when did he know it? All of us in the business (including the government) knew that nongrandfathered individual plans were going to change radically. Benefits would change and prices would go up 50 to 300 percent. The Right knew it too, since this was the source of their claims that "under Obamacare premiums would skyrocket." They were talking about these premiums. People could grandfather out of these changes, but no one anywhere had any idea how many actually would. One hundred percent of the policy-holders could have grandfathered and if they had, people would be calling Obama a liar for some completely different reason.

I would expect that political pressure will build now to open another "grandfathering window" for folks like the LA Times blogger to be able to renew their existing policies. I assume that such a window would gum up the works for ensurers.

What other land mines are out there? The other day I read an article about the insurance companies lobbying against any changes in the sign-up deadline. Their claim was that they'd have to reconfigure their rates for the following year, 2015, because the young and healthy would postpone signing up until the last minute, if then. True???

Would I be a weasel if I said that it's sort of true, but not entirely?

Of course insurance companies would want the younger, healthier members in the pool. So of course they will lobby to that end. Would they have to reprice, though? I don't think anyone knows how many of these people are going to come in well enough to factor a firm piece of the price for their participation.

The big driver of costs (and therefore fear) right now is the question of how much pent up demand for expensive medical services there is out there and how quickly those people will come aboard.

Quite apart from the question addressed here, surely one of the Greatest Ironical Moments in American Political History took place yesterday, when our Congress (of all people!) lectured Kathleen Sebelius on how to do the work assigned to her more efficiently.

Maybe she needs some lessons; but she'd better look carefully at the track records of those who purport to teach her.

The grandfathering process is definitely a missing element in every single article I've seen so far on individual policy holders being dropped.

It was clear to me from healthcare.gov's info site (before it turned into the What Registration In Hell Is Like site) that ACA brought with it minimum coverage standards. But I agree that this info has been missing from the reports. My sense is that a lot of reporting is reactionary; instead of explaining what's going on, some news outlets merely report the fact that some uninformed folks were surprised to learn that they can no longer buy non-compliant policies.

It is true that changing the incentives to sign up will affect premiums. If changes cause relatively healthy people to decide to go without coverage, the average cost per person will go up and since the premium has to cover the costs, premiums would have to go up.

Ryan - what you write makes sense; however, I have also seen some commentary to the effect that the so-called "three Rs" will help buffer the insurance carriers from adverse selection. unagidon has written pretty cogently about these mechanisms in the past here at dotCom, although I am not sure how to find the URL to his post and link to it. But here is a recent piece by Adrianna McIntyre on how the "three Rs" may help insurers survive a hypothetical delay to the individual mandate.

My understanding is that because they can't sign up new participants, participants are free to switch to the exchanges if they find something more attractive, and they can't make routine tweaks to their policies these policies are no longer attractive for insurance companies. There is a tension between allowing people to keep their policies and giving companies too much freedom to cripple the new system using loopholes. Allowing new people to buy a grandfathered plan or allowing significant changes would have allowed more people to keep their plans, but it would have also have allowd insurance companies to maintain the old system indefinitely. Obama shouldn't have kept saying that people could keep their plans. While it is true that most people either are keeping their plans or would have had to change their plans anyway, one of the goals of Obamacare was to eliminate plans that were cheap because they covered only the healthy and/or provided inadequate coverage.

I've been dissappointed by a lot of the reporting on sticker shocks. Often, the reports use the advertised price for old insurance rather than the price people would have to pay once they entered their medical history (assuming they would still be allowed to buy the policy). They also tend to ignore the differences in the benefits. Being forced to pay more for more coverage than you want may or may not be an outrage, but it is a different thing than just having to pay more for the same coverage. Finally, they also ignore the subsidies as well as benefits. If you end up paying less out of pocket than you would have before, does the fact that the list price was higher hurt you? Also, the most legitimate cases of people having trouble affording the new insurance are people who should be covered by Medicaid but aren't because of the evil actions of their governors and state legislatures. They get neither Medicaid nor subsidies, but it isn't the fault of Obamacare that the Supreme Court decided to allow states to hurt poor people for (hopefully short term) political gain.

Thanks for pointing that out. I had forgotten about the reinsurance program and am not familiar enough with it to know how it affects system-wide changes in the population of who is buying insurance from the exchanges.

Let's say that half the people who don't want insurance because they think they probably won't need any serious health care while they're young refuse to sign up for it, and, of course, they don't pay for/ support the system.

Now suppose that some of them will need serious health care (as most probably will happen), and so they go to a hospital emergency room, as they do now. Will the hospital treat them? Turn them away? Send them a bill? Call the IRS? The cops? Or what?

It seems to me that anybody who knows that it is even just *possible* that they might need expensive health care is morally responsible for supporting the system. Granted, some people can't afford to pay, but there are subsidies for them. But no one should be able to opt out of the system simply because they'd prefer not to pay for it, and then go and use the system when they need it.

“If you like your health care plan, you’ll be able to keep your health care plan.” (Actually, it was a little more than 16 words if you include what the president said next: “Period. No one will take it away. No matter what.”

Are, yes, a lie, unless he didn't know any better, in which case we have yet another example of a clueless president. He didn't know what happened in Benghazi either. It is amazing how Obama has become, in some wag's words, the bystander president. But he' not a bystander. He is carrying on his mission to fundamentally transform America. I pray to God he fails.

My understanding of the changes in the ACA is that group insurance coverage that employers pay has also been changed. This means that employers are going to have to pay more and review their existing benefit packages to be in compliance with the law.

They were given a year extension to do so (a waiver).

Point is that some employers may have to drop coverage, reduce employess. And some have been hiring more part time in order to get around paying benefits.

Unions are concerned that when it comes time to negotiate collective bargains, employers are going to be raising this compliance with the law business that is forcing them to pay more and reduce costs.

Not being partisan folks....but ACA is a bad piece of legislation.

I still do not understand why the government does not just have single payer insurance paid for through taxation to a single insurance company or companies.

Margaret, I think the controls you hope for--and my guess is that, regardless of political affiliation, we all think health care costs are too high--could occur if most people have coverage. Insurance companies have, in the past, been at the forefront of negotiating prices with providers. It's in their best interests to control costs in order to increase their profits. To that extent, viva la free market. In addition, many insurance companies are lowering premiums for individuals who stop using tobacco and/or reduce their BMI to healthier levels. Again, viva la free market.

However, I agree with George D that the ACA is a poor piece of legislation, at least in the foreseeable short term as the famous "unintended consequences" become more evident. Thousands of part-time workers, from hotel housekeepers to adjunct faculty, have already had their hours (and pay) cut to put them below 30 hours per week, thus making them less able to afford individual policies. These folks will end up costing the system in form of subsidies for their premiums or as Medicaid recipients under the expanded plans adopted by many states.

In addition, where employers now offer non-compliant insurance policies and must upgrade and pay higher premiums, you can bet that wages will stagnate or even fall. I think most employees understand that; teachers in a nearby district opted for a pay cut for half the school year rather than accept less health care coverage.

"Isn't ACA the rocky path to a single-payer system. I hope so. But I also hope it produces serious cost controls on the medical system."

If I can paraphrase St. Paul, can you give any reasons for such hopes? I honestly don't see any.

The outrageous costs in the US health care system are due to its essentially monopolistic structure, which the ACA does not challenge in any way. As for single payer, I cannot imagine how that would ever be remotely feasible is a country as large, as politically divided and as financially bankrupt as the USA in the year the Lord 2013.

That health care reform is needed is evident everywhere. In a sense, it doesn't matter if it is single payer or private although single payer is a more efficient way to collect the necessary funds through taxation.

Very complex and Jean's explanation of how insurance companies incentivize people to stay health is interesting (e.g. lower rates for non-smokers or quitting, reducing insurance as BMI lowers, etc.).

I read an article from the WSJ (an older one that featured quotes from the architect of the ACA, Dr. Ezekiel Emanuel. I also some him on Fox News Sunday and he is as obnoxious on screen as on print). Anyway, here is what he said:

"Vague promises of savings from cutting waste, enhancing prevention and wellness, installing electronic medical records and improving quality of care are merely 'lipstick' cost control, more for show and public relations than for true change."

I could not disagree more. Many, many conditions are preventable through adoption of healthier lifestyles. Furthermore, the biggest correlation around income disparity and health. Not addressing that problem is fuelling the health care crisis today.

Low-income Canadians are more likely to die earlier and to suffer more illnesses than Canadians with higher incomes, regardless of age, sex, race and place of residence.

At each rung up the income ladder, Canadians have less sickness, longer life expectancies and improved health.

Studies suggest that the distribution of income in a given society may be a more important determinant of health than the total amount of income earned by society members. Large gaps in income distribution lead to increases in social problems and poorer health among the population as a whole.

My concern is that more wealthy members of society will be able to afford care as they age and receive better quality of care than the poor who will be viewed as dispensible and as not as much value. The disparity of income is a major issue, especially in the United States, and it is directly correlated to health care.

I agree with the doctor that some form of cost rationing is going to be necessary and that we are going to have to ask some pretty signficant questions around cost vs. value of intervention as we age. I have no quibble with that. However, this is a very challenging ethical area and my concern is that those wealthy Americans (or Canadians) who can afford it will be able to obtain interventions that middle class and lower class people will not be able to access. The doctor suggests that medical professionals should rethink the Hippocratic oath and include social obligations as opposed to just thinking about the individual.

I wonder how Catholic ethicists think about this. What is their view on this whole issue? And what are the implications ethically for the sytsem.

It seems to me that the fact that the rich are generally better educated than the poor is a factor determining good health because the better educated have a better understanding of biology and medicine. A poor person might see an article on, say, caring for your heart, and not understand the all the words in the article so he won't get that good advice. And, it seems to me, that because the very stupid are usually poor, that group is bound to have a worse understanding of how to care for their own health, not to mention their being unable to ask good questions of their doctors. For them the solution is both a single payer health care system *and* better schools in poor areas.

CL@Nov.2,9:59. Hope is not the same thing as optimism...so wrote Vaclav Havel hoping for the Soviet Union to go away. It did, but it took a long time.

The ACA, an effort to deal with the irrational in our medical-care system, is showing us as it is being implemented many of the irrational elements of our current system and our current politics. For example, the irrationality of not having a floor below which no citizen should fall in seeking medical care. Obvious irrational, at least to me, are the states refusing to set up exchanges and expand medicaid. Presumably many citizens of those states, who are voters, will think more carefully about their vote next time. Hospitals and insurance companies in those states must have grave doubts doubts about the merits of the political decision by their governors and legislatures to go on with free market chaos. Again presuming, in time most states will work within the ACA framework

The huge variations--even in the same locales--in charges for every conceivable medical intervention, drugs, surgery, medical devices, emergency care, etc., etc. is irrational. As that becomes more evident to the public, regulators and providers are going to be pressured to bring down costs.

The difference in administrative costs between private insurers and medicare and the veteran's administration underlines, in my view, the cost of for-profit entities in medical care. In time the gap will be closed by a system which is more transparent and more accountable; I think the ACA will make that happen.

Will there be rationing, trade-offs, cost-benefit analysis? Yes, there will. That is part of what will rationalize medical care. But as George D's post above suggests there is already rationing, trade-offs, etc. and in his example it is a consequence of economic status. Will any system ever compensate for lower economic status and health outcomes, perhaps not. A better system in the U.S. would help.

Will a single-payers system emerge from all this? In time, yes. I may not be optimistic, but I am hopeful.

The ACA, an effort to deal with the irrational in our medical-care system, is showing us as it is being implemented many of the irrational elements of our current system and our current politics. For example, the irrationality of not having a floor below which no citizen should fall in seeking medical care.

One way to look at what is not covered by many health plans is to look at the ten "essential health benefits" that all non-grandfathered plans must now have in the United States. These include ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care. There were health plans in the United States being sold without some or many of these things. The requirement that they be included is an intervetion in the market just like the imposition of any standards is.

Obvious irrational, at least to me, are the states refusing to set up exchanges and expand medicaid. Presumably many citizens of those states, who are voters, will think more carefully about their vote next time. Hospitals and insurance companies in those states must have grave doubts doubts about the merits of the political decision by their governors and legislatures to go on with free market chaos. Again presuming, in time most states will work within the ACA framework

The Medicaid expansion was meant to expand Medicaid coverage for the very poorest. Unlike some of the popaganda out there, the old welfare system was dismantled by Bush 1 and Clinton and in general, it is mostly children and mothers that are on Medicaid today. By refusing to agree to an expansion, the governors of these states are creating an unecessary coverage gap for the very poorest.

The huge variations--even in the same locales--in charges for every conceivable medical intervention, drugs, surgery, medical devices, emergency care, etc., etc. is irrational. As that becomes more evident to the public, regulators and providers are going to be pressured to bring down costs.

This is a tricky question. Medical costs in Manhattan will probably always be higher than they are in Hope, Arkansas. The regional differences by and large reflect the general regional differences in costs. I say by and large, because it is the case that there are great cost differentials within regions that can't just be explained by one hospital or physician being better than another. One of the most expensive hospitals in Chicago is a community hospital in a suburban area that grew so fast that there is no competition in its immediate area.

There is no scope for regulators to dictate prices in the ACA (again, despite the propoganda to the contrary). But prices may come down for people in general, because one of the reasons hospitals and physicians charge commercial payers so much (about 135% of costs on average) is because they have to subsidize the un and under insured. If those people go away, the rational for such costs will go away too.

The difference in administrative costs between private insurers and medicare and the veteran's administration underlines, in my view, the cost of for-profit entities in medical care. In time the gap will be closed by a system which is more transparent and more accountable; I think the ACA will make that happen.

I've seen estimates that Medicare's commercial costs are about 3 percent of a claim and commercial costs are about 15 percent of a claim. But I take this with a grain of salt. The average Medicare claim is five times more costly than the average commercial claim. So the administration costs are closer than they look. On the other hand, costs are capped in the ACA and this should cause administrative costs to go down (or inefficient insureres to fail).

Will there be rationing, trade-offs, cost-benefit analysis?

As you point out, this is already happening. And not just in terms of class. For all the moaning about "death panels" and rationing from the Right, there will be less rationing under the ACA, because everyone now gets the same essential health benefits.

Does that mean that these things won't expand in the future? There is nothing in the ACA about Medicare, so the scenario of grandpa getting denied care because he's too old is simply a myth. But I have met at least one analyst who thinks that rationing will happen in the future. It is a political issue and will depend on how much clout the Baby Boomers have (since they are the ones who are going to get it in the shorter term). Some people argue that rationing will become necessary in the front end of the Boomer retirement years, because the system can 't support them. I am more inclined to believe that if it comes at all, it will come after the Boomers have died off to a degree that they are not a political force any more.

Will a single-payers system emerge from all this? In time, yes. I may not be optimistic, but I am hopeful.

I don't think this is likely in the near future. It's one thing for the government to regulate benefits (by establishing a minimum). It's another thing for government to take control of the fee schedule itself. I think that such a move would be too socialistic for us (although I would be happy to be proven wrong). Ironically, I think that the Tea Party, however, has made single payer more likely by claiming that the ACA is already socialist. Moving to a single payer system may not look like as big a political swing as it in fact would be, thanks to them.

How could health care possibly be rationed if there is governmental provision for everyone? Seems to me that the only way would be by limiting the lifetime costs of every individual. Or what? Have there been any bona fide suggestions of how to do it if necessary?

Governments cannot create arbitrary numbers of physicians and pay them arbitrarily large amount of money for arbitrary numbers of hours. Especially when governments are semi-bankrupt.

I can cite an anedoctal example from when I was living in Milan, Italy. Italy has a single-payer system, which is one of the reasons (not the only reason) why the public debt is about 130% of GDP and the economy is nearly frozen. Anyway, my daughter had repeated ear infections and got good treatment by her regular pediatrician. But once she had a perforated ear drum and she ended up in the emergency room. That worked fine also. But then she had to see a ear/throat/nose specialist for a follow up visit. This turned out to be nearly impossible. I discovered that in Milan, one of the richest metropolitan areas in Europe with over 3.5 million people and one of the best health systems, it takes SIX MONTHS to see a specialist in the public health system. Simply put, it is impossible to balance offer and demand with central planning. And since the public system necessarily pays doctors less than what they make from private practice, all doctors keep several hours a week to see patients who can afford the cost privately, and everybody else is "rationed" (waits six months). The only alternative would be the "Soviet" system in which all doctors are forced to work as state employees paid at a fixed rate and cannot see patients privately. Unagidon would call that "too socialistic." I call it authoritarian and self-destructive: within a few years there would be a massive shortage of doctors, and instead of waithing six month you would wait a year.

Here's something that could be rationed: prescribing by lawyers. That is what my primary care physician calls having to get an EKG, chest x-ray, and a bunch of blood tests for a pretty basic out-patient eye procedure within two weeks of the procedure. They could have used the data from my last annual check-up within the last six months, except they wouldn't.